The Footsie tumbled by 1.7% at one stage in late afternoon trading after America's Securities and Exchange Commission accused the Wall Street giant of defrauding investors in its disclosures about securities sold that were tied to sub-prime mortgage securities.

The civil fraud charge caught markets by surprise on both sides of the Atlantic as investors feared further fallout from the investigation.

US benchmark index the Dow Jones Industrial Average fell more than 120 points in early trade.

Joshua Raymond, market strategist at City Index, said: "This news now creates uncertainty in the market in terms of whether there are likely to be any other major banks involved or under investigation.

"Moreover, we don't know what the consequences of this charge will be for Goldman Sachs."

He added: "Whenever there is uncertainty, investors tend to run for the hills and with there likely to be more news on this over the weekend when the markets are shut, investors have sought to move out of their riskier holdings by selling the banks and the miners into the European close."